Press "Enter" to skip to content

Market News Reaction and Overreaction

Have you ever stopped to watch a stock market finance news aggregator over a weeks time? If you ever have you would notice that it’s not uncommon to see an article on Monday saying the stock market will collapse. On Tuesday, the S&P 500 is going to 3000. On Wednesday, we are going to have a melt up of historically slow raises of stocks. On Thursday, we are going to have a melt down. Friday well, sometimes you hit that special day where one article says everything is going to hell in a hand basket while the next article is down talking about Dow 30,000. Heaven help you if the stock market dropped by 2% or so, they’ll start calling it a stock market apocalypse.

The Future is Unknown

The reality is that no one has a clue what the market will do this week, this month or this year. And yet if you read any one of these articles in isolation you’ll probably be fighting the urge to either sell or buy right now. Of course this click bait drives visitors, but it doesn’t really reflect reality. It’s the equivalent of a horror movie for shock and awe, but with just about the same real world impact.

Negative News

Even if the news you are reading causes the market to go negative, say a poor earnings report or a report of an Enron type situation, studies have shown that you have less than a minute to a minute and a half to react to it before the market adjusts in price. So you’re likely to not benefit from the news. However, the vast majority of market prognostications don’t reflect this market impacting data, which would have to contain some new data point. Existing data points would already be priced into the market. As such, the market will go nowhere.

Recommendation

So, knowing this, one of the top recommendations here is to just tune it out and not even check your portfolio or financial news. This will help you to resist any urges to change your allocation if you’re so inclined. If you are not so inclined then by all means have at it, but remember to take it with the grain of salt it deserves. Staying the course is ultimately the best approach given no one can predict what will happen next in the market. See my post on index funds a few weeks ago for more on the day to day randomness of the market.

Do you read the financial news? Honestly I still do, but I do so for the entertainment value. I’m watching for the S&P 500 to go below 2100, scary stuff.  Happy Halloween.

6 Comments

  1. Mustard Seed Money
    Mustard Seed Money October 31, 2016

    I check in every day to the market to see what’s going on but I don’t act on it or alter my portfolio. If however, the market decides to take a significant drop I plan to use my elephant gun and buy some more passive index funds at discounted prices.

    We keep a little bit back in cash just for occasions like this. We last were able to buy in February when the market took a beating. On average the market drops by 10% every 11 months. So maybe December we can get in again 🙂

    • fulltimefinance@fulltimefinance.com
      [email protected] October 31, 2016

      I hope it continues with that pattern for a while. Sooner or later however it will dip and stay dipped in a recession. It could also raise more then the 10% in the 11 months, with you ending up behind. I honestly do the same thing, but studies shows we’d be better with time in the market rather then waiting for the dip.

  2. Andrew
    Andrew October 31, 2016

    Great points! I still like to read the financial news for entertainment value and to keep up with what’s happening.

    The funny thing is I’ve noticed more and more that there’s always some over-arching theme the financial news is talking about. A while back it was Greece/Grexit…then it was China slowing down…then it was oil…then it was Brexit…haha! It’s hard to keep track nowadays!

  3. Mr Crazy Kicks
    Mr Crazy Kicks November 1, 2016

    I don’t pay much attention to the news, and my investments stay in index funds. The networks are always going to dramatize any piece of news they have – I can find better ways to spend my time. I like lazy, low stress investing 🙂

    • fulltimefinance@fulltimefinance.com
      [email protected] November 1, 2016

      Agreed on the investment choices. I get the networks position that scary news sells, but it doesn’t do any good to listen to it.

Leave a Reply

Your email address will not be published. Required fields are marked *